If you need a student loan to go to college, then read this first to learn 5 important things you must know about federal student loans and private student loans

Student Loan 101:The Top 5 Things You Need To Know About Financial Aid for College

According to the most recent statistics, approximately 18 million American are enrolled in higher education of some sort. This includes both two-year colleges and four-year universities. If you currently are, or are looking to become a member of the sizeable collegiate population, then you might very well be joining the almost 90% of this population that applies for some sort of financial aid assistance every year.

Financial aid for college is available to almost every US citizen in some form. The most popular form of financial aid by far is procuring a student loan. Student loans either partially offset, or in some cases totally cover a student’s tuition, supplies, room and board, as well as various additional living expenses. But how much do you really know about student loans? Well, whether you know a thing or two, or nothing at all, let us help you learn about five important topics parts of a subject that affects so many peoples’ lives in one way or another.

1. Federal Student Loans Versus Private Student Loans

The two forms of student loans are federal and private.

• Public student loans are facilitated by financial and lending institutions on behalf of the federal government. This means that although public student loan lenders are private companies and not the government, they are working for the government, and thus have certain guidelines they must adhere to when doling out funds, as well as when the time comes to collect them back.
• Private student loan lenders are also private companies—but whereas public student loan lenders have certain guidelines they must adhere to, private student loan lenders do not. This means that private student loans do not adhere to government regulated terms and stipulations, which results in significantly fewer payment protections and options in the long run versus public student loans.

We are not attempting to tell you which financial aid option is right for you, but we just want you to be educated about the differences between public and private student loans—so that you can make an informed and responsible decision when the time comes to sign on the dotted financial aid line.

2. Student Loans Have Borrowing Limits

There are significant differences in financial aid borrowing limits between private student loan lenders and public student loan lenders…

• Federal Student Loans come with strict lending limits—or $31,000 total for a dependent undergraduate student, $57,500 total for an independent undergraduate student, and up to $138,500 for postgraduate and professional degree seekers—all without credit checks or pre-existing conditions.
• Private student loans do not always have lending limits—which can be both a good and not so good thing. Private student loan lenders require credit and other background checks to ensure credit worthiness, resulting in limited financial aid for some—but for those with established credit, almost limitless aid and therefore, potential debt.

Therefore, it is important to weigh your needs—including tuition costs and other essential living expenses, before deciding which type of financial aid to pursue.

3. Both Student Loan Options are Yours For Life

Just about any kind of debt can be discharged after a certain amount of time, or in the case of a liquidation attempt like bankruptcy—except student loans. Whether federal or private, student loan lenders can (and will) follow you throughout your entire life to obtain payment on your debt. Although in some cases, like borrowers on social security, disability or another form of public assistance, collection tactics and effectiveness vary, there are few if any ways to cease collections efforts. In fact, death and total and/or permanent disability are two of the only cases in which student loans of any kind can be discharged.

We do not write any of this to frighten you, but just to help you understand the importance of choosing your financial aid options wisely—and also of course, choosing a major and subsequent career path that fulfills your life, while at the same time taking into account the options you will have for student loan repayment…which is based very heavily on whether or not you have public student loans or private student loans.

4. Loan Forgiveness is a Potential Federal Student Loan Perk

Student loan forgiveness is something very few students think about, but also something that can significantly affect them nonetheless. Student loan forgiveness can occur if a borrower chooses a career in one of the many public service sectors. Some careers that can potentially lead to student loan forgiveness include:

• Educators in certain geographical or socioeconomic areas
• Educators on military bases worldwide
• Social Workers/Psychologists

However, only federal student loans are eligible for possible loan forgiveness one day. Private student loans do not have to offer this option. It is important to remember that even federal student loans must be in good standing and meet other criteria—including waiting at least 10 years from graduation to forgiveness. But keep in mind that if you are thinking about becoming an educator, social worker, or working for another civil service agency, pursuing federal student loans might be a good idea to pursue first.

5. Student Loan Payment Flexibility Favors Federal Student Loans

Most people have heard a student loan horror story or two, and most of these stories have to do with borrowers making well over the poverty limit, but still not being able to afford their minimum payments. Unfortunately all the research available firmly indicates this storyline is much more truth than fiction. However, these stories are much more prevalent with borrowers who took out private student loans than federal ones.

Public student loan lenders allow for provisions including:

• Forbearance
• Deferment
• Income-Based Repayment Plans

Specifically, income based repayment plans are becoming very popular, because the loan company modifies repayment terms to conform to a certain percentage of a borrowers income. Unfortunately, private student loan lenders do not have to offer any of these provisions, and therefore many don’t. The absence of these policies for many private student loan lenders leaves borrowers struggling to cope with loan debts growing exponentially by the year. Also, private student loan lenders can:

• Set variable interest rates that are constantly changeable throughout the life of the loan
• Deny a stay of payment, and demand loans to be paid either while the borrower is still in school, or else immediately upon graduation

In this regard however, it is important to remember that interest rates still affect both types of student loans. Therefore, if your income-based repayment plan has you making a monthly payment that doesn’t cover the total accrued monthly interest on the account balance, your balance will still rise even though you are making payments.

Gain Professional Insight to Make Smart Decisions

When in doubt, the best course of action is to trust a professional—and in this case, the professionals would be the folks in your college’s financial aid department. Most of these people have been doing their jobs for a while, and more than long enough to have seen just about everything associated with the lending, borrowing and repayment process

It is important to educate yourself as to what constitutes intelligent student loan borrowing. Trusting the insight of an industry professional greatly assists your educative process, and your overall decision making as a result. No matter what, make sure the choices you make when seeking financial aid for college, work in your favor both in the short term, as well as the long run.